Abstract: Criminal groups govern millions worldwide. Why do they rule and how do they respond to states? Many argue that criminals step into vacuums of order, and increasing state services crowds out gang rule. Interviews with criminal groups in Medellín suggest this overlooks an indirect incentive to rule: governing protects other illicit businesses. We present a model of duopolistic competition with returns to loyalty to study how gangs respond to state governance. We also examine a quasi-experiment, whereby new borders created discontinuities in access to government services for 30 years. We show how gangs responded to state rule by governing more.
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